Global oil benchmark Brent LCOc1 was up 22 cents at $37.44 a barrel by 0142 GMT, after hitting a three-week high of $38.99 on Monday as relations between Middle Eastern rivals Saudi Arabia and Iran deteriorated following Riyadh's execution of a prominent Shi'ite Muslim cleric.

But crude futures had erased those gains by the close on Monday as fears about the global economy outweighed concern about the dispute between Saudi Arabia and Iran, which looked unlikely to disrupt oil supplies immediately.

U.S. crude's West Texas Intermediate (WTI) futures were up 28 cents at $37.04 CLc1.

The tensions between Saudi Arabia and Iran "will likely reduce the likelihood of any collaboration between the two oil majors regarding oil output as Iran re-enters the international market once sanctions are lifted," ANZ bank said on Tuesday. "This will further aggravate the oversupply situation in 2016."

Chinese stock markets extended declines on Tuesday after a 7-percent plunge the previous day caused trade to be suspended.

With Brent and WTI still trading some two-thirds below theirmid-2014 highs, crude prices are likely to average around $50 a barrel amid the glut in global crude supplies, a Reuters poll of analysts showed.

Saudi Arabia's severing of diplomatic ties with Iran will not affect its efforts to secure peace in Syria and Yemen, and ties with Iran would be restored when it stops interfering in the internal affairs of other countries, said the kingdom's ambassador to the United Nations.

Traders said market intelligence firm Genscape reported abuilding of more than 480,000 barrels in Cushing crude supplies for the week to Jan. 1, after flooding in the U.S. Midwest caused temporary closure of a couple of pipelines. [L1N14K05D][L1N14J011]

U.S. commercial crude oil stocks probably dipped last week, while distillate and gasoline stocks likely edged higher, a preliminary Reuters survey showed on Monday. [EIA/S]

Industry group American Petroleum Institute will release its data at 4:30 p.m. ET (2130 GMT).

 

(Reuters)